The true cost of counterfeit wine in F&B outlets
Updated: Mar 26, 2019
Counterfeit wine is a growing concern in the industry and implementing due diligence policies is the only way to prevent irreversible financial or reputational damage to successful companies established through years of hard-work.
In July 2018, the Spanish Guardia Civil arrested Alex Estevez of the famous Don Alex restaurant in Querceda as well as 4 other persons accused of producing counterfeit bottles of Vega Sicilia and Pingus before selling them in the restaurant or via online platforms (total benefits estimated at €1.5m). The news shocked far beyond Spanish borders and reminded the world that counterfeiting is not just an issue for wealthy collectors but also concerns the F&B industry itself. Fortunately, such deliberately fraudulent schemes are rare yet many hotels, clubs or restaurants may end up with counterfeit bottles of fine wine in their cellars without even realizing it. Buyers and sommeliers face numerous challenges to prevent such issues yet due diligence is more important than ever as fake bottles put their operations at risk, and not only financially.
Wine is one of the few markets were buyers are willing to pay high prices without more insight than the seller’s introduction which may turn out to be a bad fairy tale
“How can I make sure that I don’t have any counterfeit bottle in my cellar?” That is the question that many hoteliers and restaurateurs increasingly ask themselves. For premium outlets and large operations such as hotels that receive and sell cases of fine wines on a daily basis, the answer is not easy and concerned operators face many challenges to implement good practices. Firstly, unless you have a sommelier or buyer certified as an authenticator and able to dedicate at least half of his time to the task, inspection of each bottle upon reception is not a practical option. Outlets are meant to generate profit and the staff’s main efforts, once the buying decision has been made, should be focused on how to sell the wine rather than questioning its authenticity. On the other side, as in all industries, it requires a certain degree of skills and knowledge to sell the most expensive products (which are primary targets for counterfeiters) therefore training oneself and one’s staff to detect the most obvious fakes is a necessary first step to implement a vigilant mindset when dealing with premium and expensive items in the same way as a chef will cautiously inspect a delivery of Alba white truffles to make sure he gets the right stuff.
Implementing due diligence policies to prevent financial risk
The best way to solve a problem is not to have it in the first place and in order to prevent most issues or take potentially costly leaps of faith, buyers should start by performing due diligence on the vendors they buy from. The Winefraud list of recommended vendors is a good place to start, also checking company background and track records as well as getting to know personally the supplier’s team to get a feel of their own knowledge and expertise. Anyone can sell a bottle of Petrus, very few can differentiate a real from a counterfeit one. Excluding traders or houses selling “as is” is also an option to consider: such intermediaries are keen to share the profit but make a point not to be responsible at all for what they offer so one might wonder why should they be trusted. Numerous cases of dubious or proven counterfeit bottles put on sale by retailers or auction houses (Koch v. Greenberg or Krug 1947 cases for Acker Merrall, Romanee-Conti 1978 at Baghera etc.) should advice caution, “caveat emptor” as they say. In order to sell super cars, collector watches or art pieces, extensive due diligence and expertise are required prior to the sale. Wine is one of the few markets were buyers are willing to pay high prices without more insight than the seller’s introduction which may turn out to be a bad fairy tale about the hidden cellar of some imaginary aristocrat.
Most F&B directors and restaurant managers would argue that it is the seller’s responsibility to ensure that the bottles are sound and they would be right but the bottom line is that it is on the restaurant floor that the bottle will eventually be opened for the final client putting most of the risk onto the premise. Some resorts have incorporated this perspective into their own purchasing policy starting by warning all their vendors that should they find a bottle purchased from them to be counterfeit, the vendor will be blacklisted from all the property’s outlets and related companies. In order to implement this policy and detect suspicious bottles, they hire an authenticator 2-3 times a year to inspect their current stock of fine wines and consequently confront the vendor if problematic bottles are found. This is the best course of action as if there are problem bottles, they will be identified in the cellar thus keeping the problem between the supplier and the resort rather then facing it on the floor in front of the client.
“I wouldn't buy any more wine of that calibre. It is a big risk to take.” Enzo Cassini, Zafferano GM on writing-off a suspect £18,000-magnum of 1961 Petrus
In February 2008, the Daily Mail reported that a client had rejected an £18,000 magnum of 1961 Petrus at Zafferano in London because the cork was blank and he suspected a counterfeit bottle. The restaurant reacted in the perfect manner and wrote-off the bottle while the client ordered another one (a £20,000 magnum of Mouton Rothschild 1945) but it resulted in a net loss for the outlet leading general manager Enzo Cassini to state “I wouldn't buy any more wine of that calibre. It is a big risk to take.” Given the current trend of fine wine prices and the very high levels achieved by the rarest bottles, this risk will only increase in the future potentially putting the restaurant in jeopardy: how many places can afford to write-off £18,000 from their books? Besides, while in this case, the restaurant admitted the problem, what would have happened if both sides had argued over the bottle starting a litigation process? Legal fees would quickly have exceeded the cost of the bottle itself causing even more financial damage. Cassini’s take is understandable and emphasizes the financial risk associated with the discovery of counterfeit bottles in a restaurant’s cellar but there is another hazard posing a potentially greater threat to operators: the reputational risk.
The reputational risk
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Warren Buffett’s quote is more than ever relevant to the wine industry with the increasing reputational risk implied by the sale of counterfeit bottles. In 2017, a picture was posted on social media of a client with a CHF10,000 dram of Macallan 1878 bought at the bar of the Waldhaus am See hotel in St Moritz. A few days later, several experts pinpointed the bottle as a counterfeit and the hotelier reacted immediately refunding the client and requesting analysis for the bottle which eventually proved its inauthenticity. The hotel’s reaction has to be noted as they understood the reputational risk for them and took immediate action to prevent it. In the era of social media, such stories resonate quick and widely around the globe, putting the company at risk of durably damaging its reputation and brand image. A hotel chain should probably assess the opportunity cost of regular inspections of their cellars over the bad publicity that may backfire on them should such as case arise. It only takes one staff’s error of judgement to put a problem bottle on the list and while the culprit may face proceedings, it is the company and its brand that will be exposed.
A hotel chain should assess the opportunity cost of regular inspections of their cellars over the bad publicity that may backfire on social media should a bottle be counterfeit
Counterfeit bottles have a half-life, once they are put on the market, they will keep circulating for years even if some of them are proven fake and if their quantity naturally decreases over time through (sadly) consumption. It is one of the main challenges of the fine wine market today as evidenced by the numerous cases emerging in the media or the amount of efforts put by wineries to prevent it for their new releases. However, older vintages are not protected by such measures and all fine wine buyers are potentially exposed. It is difficult to explain the risk without sounding too pessimistic or preaching for one’s church but it should be acknowledged by all those willing to protect their business from this plague. Counterfeit wine is an issue and the only way to address it for F&B operators is to be pro-active, implementing due diligence and inspection policies that will prevent irreversible financial or reputational damage to successful companies established through years of hard-work